Value and Exchange
By Arnold Kling
The exchange paradigm has a very different theory of growth. Growth does not mean movement along an equilibrium path but rather the unfolding of a complex process. At any moment the potential of the economy is not completely realized: unexploited opportunities for mutually advantageous exchange abound. Indeed the “potential” of the economy is not defined; it depends on the initiative and ingenuity of individuals. Individuals engaging in trading, innovation, and institutional change generate the process of growth, not only discovering potential but also creating it.
This is a long article that is difficult to summarize. I recommend it for graduate students and professors, as opposed to undergraduates. I think it has a lot of wise things to say about the tie between mathematics and what Kohn calls the value paradigm, in particular that paradigm’s focus on a trading equilibrium, in which there are no unexploited profit opportunities.
In the exchange paradigm, in contrast, people are always seeking to exploit profit opportunities. I find that my own evolution in economic thinking corresponds well in Kohn’s terminology as a shift from the value paradigm to the exchange paradigm.
For Discussion. The profession has a lot of sunk cost in the “value paradigm.” Does this mean that the exchange paradigm is doomed to fail?